From the Globe & Mail: China cuts U.S. Treasury holdings:
Is China falling out of love with U.S. Treasuries?
(Note: you will need to scroll down to the section discussed here.)
“China, the biggest foreign owner of U.S. government bonds, cut its holdings in December to the lowest level since June 2010…
“Analysts are divided on what the change means: a temporary shift toward Europe to help the region shore up its finances; a strategic move away from the U.S. on concern a weakening currency and low interest rates will cut investment returns; or a simple dip that doesn’t mean that much.”
Here’s another idea: China will not be FATCA compliant and wants to limit the downside risk of 30 percent withholding tax paid to IRS.
Both China and the Russia have been publicly critical of US monetary policy. The chart on the page shows that China has not increased its ownership of debt in about twenty months. Meanwhile the US debt itself has increased by 2.5 trillion? Who is buying the debt? Zerohedge suggests “primary dealers”–that is at the end of 2010 when Ben Bernanke stopped officially buying it (QE II). I don’t understand the game that the US is playing. But I am like the Chinese and the Russians. I believe it is a case of debasing the currency and eventually anyone holding dollars or US treasury notes is going to get screwed. I have keep a significant amount of US debt in my margin account for that reasons (a position called, US dollar carry trade or shorting the US dollar)– and I have it invested in Canadian resource companies.
Peter, why should anyone want to buy US debt? Look at the interest rates! It’s almost surreal for me to look back at my US money market accounts that were paying 6%/year. Now it is .021%/year.
Personally, I hate the FATCA like the plague, but for the US, it is a form of control and maybe an attempt at modernising their monetary controls. Most countries already have some sort of currency controls in place. Brazil doesn’t even float their currency on the open market. Same for Russia I believe.
USD is only good when risks abound in the markets. I’m not a believer that the world will always be embroiled in crisis similar to the ones we saw in 2008. This is why that I am bearish on the USD until they make huge structural changes to their fiscal and monetary policy. It may come at our expense, but maybe the FATCA is their attempt to do this.
The US must do the following if they do not want to see hyperinflation: (1) Allow the market to set interest rates, not the Federal Reserve; (2) The US Federal Government must live within its means; (3) The Federal Reserve has to stop monetizing debt.
I don’t believe any of those three things are going to stop happening, and eventually, the dollar will spiral out of control.